Last month, the New Economy Network Australia (NENA) hosted their annual Federal Budget Rundown webinar this year featuring Matt Grudnoff, a Senior Economist at The Australia Institute, who discussed the Federal Budget handed down on the 9th May 2023. The Australia Institute is one of Australia’s leading public policy think-tanks which conducts research on a range of economic, social, and environmental issues. The webinar was facilitated by Dr. Michelle Maloney, Co-Founder and Director of NENA, and National Convenor of the Australian Earth Laws Alliance. As Dr. Maloney explained, the Federal Budget is Australia’s largest annual allocation of our collective financial resources. The Federal Budget outlines the expenditure of all of our individual and company taxes, and it is important to understand how these resources are allocated and what it means for the wellbeing of our society.
In what is becoming an annual tradition for NENA and The Australia Institute, the annual Budget Rundown aims to help people understand how the Government has allocated financial resources, particularly in key areas such as the environment, social justice, community wellbeing, and other topical issues addressed in the Budget. This year's discussion focused on budgetary spending on the environment, housing and community services, and welfare and employment; there was also a wider discussion which unpacked the workings of our current economic system and the social inequities it perpetuates.
Senior Economist Matt Grudnoff noted that expenditure items within the Federal Budget largely stay the same each year, with approximately only 2% of the Budget changing each year. He explained that the budget helps to understand what the Government predicts will happen to the economy, as the process involves predicting forward estimates for the next four years. Looking at this Budget, Matt said the Government expects that economic growth will decrease by more than half, consumer spending will reduce, and that we will see increases in unemployment.
Due to Australia’s cost of living crisis, welfare and unemployment were big topics in the lead up to the Budget this year. Welfare payments are currently well below the poverty line. Matt explained that in this Budget, the Government has increased welfare payments by $40.00 a fortnight. While any increase is better than no action, the Government would have needed to raise payments by $25.00 a day to get unemployment payments over the poverty line. Similarly, the Budget included an increase in rent assistance payments, with an increase of around 15%, bringing the payment to around $94.00 per week. While this increase is welcome, in many cities this additional payment is still not enough to make rent affordable for welfare recipients. Finally, the Government announced changes to parenting payments that mean single parents will not be forced onto the much lower, job seeker rate, until their children are fourteen years old, rather than eight years old.
Matt explained that this Budget reflected the Government’s challenge in trying to provide cost of living relief to people who are struggling, without creating further inflation—which would provoke the Royal Bank of Australia (RBA) to raise interest rates further. The Government provided some of that cost of living relief through direct subsidies. But if the Government were to hand out cash, this would increase total demand and likely lead to an increase in prices. Instead, the Government chose to provide direct subsidies for things such as energy, automatically deducting $500.00 per year from the energy bills of low income households. This means cash is not put into the economy, and prices should not be impacted by greater demand. Matt noted that the Government also used this approach in other areas such as childcare, and looking at the energy efficiency of housing by subsidising more energy efficient home appliances and insulation. These policy solutions are intended to reduce inflation by decreasing costs for consumers without increasing demand in the economy.
Australia is facing a housing crisis. In the last year there have been huge interest rate increases on properties, and in Canberra, Sydney, Brisbane and Melbourne rents rose in 2022 at the fastest rate in over a decade, leading to increasing hardship and homelessness. In addition to the small increase to rent assistance mentioned above, bringing the weekly payment to around $94.00, the Government has committed to spending ten billion dollars on the Housing Australia Future Fund. Matt explained that through this fund, the Government will invest the ten billion dollars into the stock market, and that the returns from this investment will fund social housing in the future. Selling and buying assets and/or investments are not counted towards the Budget’s bottom line, meaning this ten billion dollars will not impact other allocations in the Budget. While it is positive to see the Government committing to more funding for public housing, the expected returns will fund an estimated 30 000 houses from 2026 onwards. During the webinar Michelle questioned the Government’s rationale for using ‘the market’ to build houses, rather than simply intervening and supporting housing for those who need it. Matt agreed this was too small of a commitment, stating “the housing industry needs a larger and more radical shake-up.” His solutions included the Federal Government funding states directly, empowering them to build public housing; as well as imposing restrictions on negative gearing and the capital gains tax, to reduce investor demand in property.
A key topic of discussion was the environment, with webinar participants keen to hear how a government which campaigned on a platform of commitment to climate change would deliver on its promises. Matt highlighted the Federal Government’s 1.4 billion dollar commitment to household energy upgrades over the next four years, aiming to make houses more efficient, as well as the Government’s commitment to climate change targets via a reformed Safeguard Mechanism to regulate emissions. The Government also announced a new Federal agency, Environment Protection Australia, and funding it has set aside to establish the agency and implement reforms to existing environmental protection laws. However, there was not a great deal more for the environment in this budget.
Several webinar participants were interested in understanding the amount that the Federal Government continues to subsidise fossil fuels. As The Australia Institute reported earlier this year, fossil fuel subsidies are supported by all state, territory, and Federal governments, and cost 11.1 billion dollars in 2022–23. Matt explained that in this year’s Federal Budget, the diesel fuel rebate has increased quite dramatically, which likely means a growth in this figure next year. An audience member asked for a breakdown of what these subsidies entail. Matt reported that the diesel fuel subsidy is a significant portion of the total figure paid in fossil fuel subsidies. For example, if you buy diesel and are using it on your own roads, you don’t pay tax on that diesel; this means mining companies who operate on private roads are able to use diesel tax-free. As Matt highlighted, thes savings may dissuade companies from transferring to electric vehicles, as using tax-free diesel will be more economical than making the switch. Additionally, state governments already subsidise companies, through building roads to service their operations and providing free water use. Further, mining companies receive significant subsidies through the reduction or removal of royalties on minerals and resources. To learn more about what these new subsidies entail, check out The Australia Institute’s recent report, fossil fuel subsidies in Australia 2023.
There was little new funding for the care sector in the Budget but webinar participants were interested in issues such as the privatisation of childcare and aged care as a way for the Government to cut costs. Eva Cox, a well-known social commentator, sociologist, feminist, and activist who was participating in the webinar, joined the conversation and emphasised the need to improve quality of care, staffing numbers, and the local ownership of services in the care economy. She highlighted the multiple Royal Commissions into the aged care sector and National Disability Insurance Scheme (NDIS) with little evidence of Government action. Matt confirmed that the current Federal Government seems to be embracing the private provision of care-childcare, healthcare, aged care, and disability care. This means that service provision becomes much more expensive than if the Government were to provide the services itself. Further, both Eva and Matt emphasised the lack of social cohesion caused by services delivered by large for-profit companies, compared to services provided by small, locally owned, and community-based providers. In response, Michelle emphasised the pressing need for us to value our society first, and to think about how our economy can service our people and planet, rather than just making profits for a small few.
Employment and Inflation
Matt unpacked the relationship between the employment rate and rising interest rates. He explained that when we are in a state of full employment, the economy doesn’t have the ability to create more products or deliver more services even though there is consumer demand. This demand drives prices up, leading to the levels of inflation we are currently experiencing. To counter this inflation, the RBA believes that we need to increase the number of unemployed people and limit consumer spending. As Matt explained, the RBA has increased interest rates to counter rising inflation in the hope that those higher rates will curb consumer spending, thus reducing inflation.
Michelle asked Matt about any developments in the Federal Government’s apparent interest in building a wellbeing budget; Michelle noted that while it was profiled in last year’s budget, this year’s budget didn’t seem to discuss wellbeing economics at all. Matt agreed, and said that while this year there were some small wins: for the environment, welfare, the care economy and housing, there wasn’t an explicit focus on wellbeing in this year’s budget. However, the Government is working on what it calls a standalone strategy (“Measuring what matters”) and it has been seeking input for further development, and it was mentioned that this is an important process to watch.
Michelle thanked Matt for his fantastic overview of the Budget and wrapped up the session by noting that many aspects of the Budget were disappointing from an environmental and social justice perspective. If the Government truly wants to address the issues of environmental destruction and social inequality that we are currently facing, a more radical approach is required. We must reimagine our economy: dismantling the existing systems which are designed to sustain indefinite economic growth, and recenter them around our environment, our local communities, and our society’s wellbeing.
If you haven’t already, you can watch the recording of this webinar here. NENA thanks The Australia institute and Senior Economist, Matt Grudnoff for their time and expertise. If you want to learn more about NENA and get involved in imagining a new economy for Australia, register for our 2023 conference, Life After Capitalism.